At the end of its War for Independence, the United States comprised thirteen separate provinces on the coast of North America. Nearly all of 3.9 million people made their living through agriculture while a small merchant class traded tobacco, timber, and foodstuffs (flour, rice, livestock, salted meat, and fish) for tropical goods, useful manufactures, and luxuries in the Atlantic commercial community. By the time of the Civil War, eight decades later, the United States sprawled across the North American continent. Nearly 32 million people labored not just on farms, but in shops and factories making iron and steel products, boots and shoes, textiles, paper, packaged foodstuffs, firearms, farm machinery, furniture, tools, and all sorts of housewares. Civil War–era Americans borrowed money from banks; bought insurance against fire, theft, shipwreck, commercial losses, and even premature death; traveled on steamboats and in railway carriages; and produced $2 to 3 billion worth of goods and services, including exports of $400 million. This dramatic transformation is what some historians of the United States call the “market revolution.” For antebellum Americans, this revolution stood near the center of the experience of what happened to the United States during its grand experiment in republican government. For many modern historians, it does so still.

Much of what people experienced with the rise of capitalist market relations derived from the depersonalization of transactions – from the rise of heartless markets and heartless men. In the pre-modern world, who you were had everything to do with how you were treated in public places: whether you received credit, merited trust, deserved poor relief, or belonged in a circle of “friendship.” It was a hallmark of modern capitalist relations that transactions among individuals became routinized, institutionalized, and depersonalized, so that one could do business with strangers at a distance as readily as at home. In ways never intended (and largely unimagined at the time), the story of “marvelous improvements,” discussed previously, radically transformed the social relations that early Americans once had assumed to be natural, desirable, and perhaps even immutable. The same developments that sustained enthusiastic narratives of prosperity and progress turned up in counternarratives of loss, frustration, and dislocation. Individuals seized opportunities for gain and advancement that embroiled them forever in market relations that undermined their places of comfort in earlier networks of family, community, and friendship. The maddening ambivalence of the experience of the market revolution in antebellum America lies not just in the existence of counternarratives but their coexistence with the narratives of progress, often running side by side, like unnatural harmonies, in the lives of individuals who could not reconcile their contradictions.

How then to explain this market revolution in the early United States? Never simply a matter of historical curiosity, the rise of the market economy triggered ideological claims that linked freedom with market-based capitalism so completely that later apologists scarcely could believe they were not the same thing. As a result, histories of the new United States have been shaped from the beginning by conflicting interpretive objectives: One side wants to naturalize the market revolution and celebrate the outcome as what ought to be; the other catalogs the losses of security and independence experienced by so many and argues that something must have gone terribly wrong. Because the new American Republic was the product of intentional founders, because its design was supposed to yield a “new order for the ages,” what followed literally begged for a normative reading.

As the antebellum sectional conflict degenerated toward war, Americans began to see how interpretations of the founding experience could justify different conceptions of the nation. Regional trajectories clearly diverged: One perpetuated staple crop agrarian ways first perfected in the Chesapeake before Independence, the other embraced forms of commercial and industrial modernization once considered alien by some persons in the founding era, regardless of where they lived or whether they owned slaves. Both sides, South and North, insisted they were living out the promise of the American Revolution, and in important ways, they were.

With political independence secured under the Treaty of Paris (1783), the American founders in the states and in the Union sought to restart a war-torn economy and find their way back into the Atlantic commercial networks. At first they sought prosperity, but not everyone agreed how best to achieve that end. Prior to the independence movement, the individual colonies had shared very little in each other's progress or prosperity. Their interests were hardly as uniform as republican rhetoric was wont to imply, and visions of the ideal future diverged significantly from place to place and from person to person in the immediate postwar period. Everyone hoped to be better off, of course, in the hands of their own governments, being taxed and regulated for their own interests and not those of a distant power. But individual incomes had fallen steadily since 1774, and nobody felt much in the mood to shoulder higher taxes and more burdensome government than had prevailed before the Revolution – even if such things might be good for the fledgling nation. America's radical leaders had led their neighbors in a separatist movement; now the time had come for them to deliver the promised benefits of liberation.

Three barriers immediately frustrated these objectives. First, the Americans were deeply in debt – to the Dutch, to the French, and to themselves.

After two full years of hardship, the American economy began to emerge from the Panic of 1819, shaken by the experience but still possessed of the deep roots of optimism and promise that had been planted since the time of Independence. The foundations of American prosperity survived; fundamental resources, energy, and innovative habits persisted; and the shape of what might be was apparent to perceptive entrepreneurs. And even as the speculative boom of the late 'teens marched toward its disastrous resolution, crucial structural changes had begun that pointed the way toward an era of “marvelous improvements” that would capture the imagination of a generation and set the agenda for American economic growth through the rest of the antebellum period. Nothing better symbolized the pluck and drive, the audacious ambition, and the breath-taking confidence of men with little more than a layman's hunch about what they were doing than New York's magnificent Erie Canal.

THE RISE OF NEW YORK PORT

Since the late colonial era, New Yorkers had dreamed of improving the “water-level” route to the West that nature conveniently laid out within the confines of their state. From Maine to Georgia, elevations of two or three thousand feet separated the Atlantic from the interior waters – except in New York. In the Empire State, the east-west valley of the Mohawk River offered a link between the Great Lakes and the Hudson River – a route 360 miles long – with an elevation gain less than 600 feet.

The years 1835 and 1836 showed a spike in American prosperity like nothing ever seen before. Cotton and foodstuffs poured forth into the markets of the world; investment capital flowed back in a virtual torrent as rich men in Europe and Britain scrambled to own a piece of the rising economic phenomenon that was the United States. Land sales boomed, cotton prices soared (driving up the price of land and slaves as well); the vast continental interior succumbed to parades of pioneers who stripped the land of timber, replacing it with cotton, hemp, wheat, corn, cattle, and hogs. Brilliantly, the tools of the market revolution – productive machinery, transportation improvements, easy credit, and marketing facilities – delivered fortunes to thousands of entrepreneurs and promised the same to tens of thousands more who lined up to emulate the successful. Then, between February and June 1837, it all fell to pieces again. Brokers failed in London, Paris, and all over the United States. Investment houses returned bills unpaid, leaving their correspondents holding worthless promissory paper. In May, banks in New York, Philadelphia, Providence, Baltimore, and New Orleans suspended specie payments and called in their loans. Suspension of payments interrupted credit, and the absence of credit brought to a halt the flow of goods and services throughout the system.

The Panic of 1837 cut a wide swath of injury largely because so many households now depended on the integrated market economy.

The Panic of 2008 struck while I was finishing this book. During the third week of September, networks of short-term credit that fed the cash needs of banks, brokerages, and large corporations started to freeze up. Declining value of capital assets was forcing lending institutions to call in loans and reduce their exposure, setting off the familiar downward spiral that makes investors panic. Markets recoiled in surprise, and confidence – that mysterious, invisible energy that keeps all financial bodies snug in their proper orbits – began to evaporate.

In the late twentieth century, capitalists worldwide had come to believe that institutional firewalls, sophisticated central banks, and modern regulatory regimes had consigned this nightmare scenario to the dustbin of historical fantasies – but here it was in the autumn of 2008 spinning madly out of control. Giant banks defaulted, stock markets shuddered, and financial institutions refused to lend to each other for fear that the morning news would report further bankruptcies. Thriving industries found it impossible to sell the commercial paper (very short-term loans) that allowed them to pay for materials and parts or meet their weekly payrolls. Money markets seized up. The interest rate on United States Treasury Bills, thought to be the last safe haven for cash, fell to zero. (In effect, investors were paying the treasury to keep their money.) By late September, had there still been windows that opened onto Wall Street, rich, young MBAs might have been falling like rain.

“Let every Shylock leave his hole, and in the open day boldly sharpen his knife, to take ‘the pound of flesh’ nearest the heart of his honest neighbor!” So wrote Baltimore journalist Hezekiah Niles about news from the Bank of the United States, in August 1818, that free exchange of notes among various regional branches would be suspended. Ranting wildly in graphic prose, Niles condemned the “Rag Barons” and their “paper system” for the “criminal” abuse of honest persons and taxpayers. Whatever suspicions he had harbored since 1816 about the wisdom of chartering a new national bank stood vindicated now that the crooks and swindlers in charge of this engine of currency manipulation had turned their “knives” upon the people, not just “skinning as heretofore” but cutting deep at the “arteries of the public body” to get “blood enough at once to swim in.” So began the national nightmare known to history as the Panic of 1819.

Part and parcel of the postwar economic boom had been a dramatic expansion of the American money supply. As exports recovered from the wartime disruption, productivity expanded, and the promise of rapid growth returned, state and local banks, especially in the West and South, multiplied their loans and note issues with little regard for specie reserves or underlying values. All banks had stopped converting paper money into coin during the late war, so there was no effective check on this proliferation of banknotes.